If you have a will — and you should have one — you may have executed it after years of putting it off. You’ve paid your attorney a lot of money and given serious consideration to make the right choices and ensure that the will is air-tight. Finally your will is finished, and you can sleep soundly knowing that your heirs will receive the assets that you intend. Right?

Not necessarily. Most people aren’t aware that their wills don’t have the final say concerning assets held in retirement accounts — 401(k) plans and individual retirement accounts (IRAs). The beneficiary provisions of these accounts supersede those of wills. So clear is the law on this point that some financial people call retirement-account beneficiary designations “substitute wills.”

For those who are divorced, this problem could result in a posthumous nightmare: Your ex-spouse might get your IRA assets.
The lack of awareness of how inheritance of retirement account assets works is a pervasive problem in a nation where 401(k) accounts contain nearly $6 trillion in assets and IRAs, about $6.5 trillion. Indeed, most of Americans’ liquid assets are held in such accounts. These assets, plus their homes, make up the overwhelming majority of most people’s estates.

Rules governing 401(k) plans require that account assets automatically go to the person who is your spouse when you die – unless you get your spouse to relinquish his or her claim to the assets and file the required paperwork with your employer demonstrating this and designating your intended beneficiaries. (A copy of a prenuptial agreement won’t dot; you must file the spouse’s sign-off that they are giving up any claim to the assets.)

After your death, your IRA assets go to whomever you designate as the beneficiary when you set up the account, unless you’ve since filed an updated beneficiary form. If your life situation has changed in the years since you set up the account, there may be a conflict with your will, especially if the will was drawn up more recently. You may now be divorced and remarried. You may have had no children when you set up the account and now have grown children who you want designate as beneficiaries.

Failing to attend to these issues could result in unintended outcomes. Regarding your 401(k) assets, your children might be left out. Recently I learned about a family where the father was wealthy and had most of his assets in his 401(k) account. He intended for his three grown children from his first marriage to be his only heirs. Although his new bride of two months recognized this preference, upon his death the full 401(k) account went to her. Because the father hadn’t arranged for his new wife to relinquish her claim to these assets and hadn’t designated his children as beneficiaries of the account, the children had no clear claim to the assets.

To assure that the right people inherit your retirement-account assets, take these steps:

• If you have a will, consider talking to your attorney about designating your estate as the beneficiary of your retirement accounts. That way, you can achieve the intent of your will regarding these assets. Estate attorneys don’t want retirement accounts to transfer outside of wills that include provisions governing the distribution of assets for specific reasons. Designating a beneficiary for retirement accounts other than your estate might override estate-planning goals of reducing taxes, qualifying a special-needs child for government benefits or protecting assets from creditors, divorced spouses or a spendthrift heir. Such goals are often overlooked by investment advisors unaware of the problems they may cause by asking clients to designate a beneficiary for retirement accounts without reconciling this with your will.

• When there aren’t any such distribution concerns, update your will to reflect the beneficiary status of your retirement accounts so that there are no conflicts and the status of these accounts is clear to all concerned.

• For changes in IRA beneficiaries, contact the financial institution that holds the account. Typically, this is an insurance company or a large financial services firm. Ask them for a change-of-beneficiary form. This time, keep track of your copy.

• To change 401(k) account beneficiaries, go to your HR department at work and ask to file the required paperwork. (When you get divorced is a natural time to do this.) If you’re married and want to leave your assets to someone other than your spouse, be sure to file required paperwork showing he or she is giving up all claims to the assets. If you’ve never been married, find out who is designated as a beneficiary and decide if you want to make changes.

• If you have 401(k) accounts that are still held by previous employers, have these accounts rolled over into an IRA. In the process, you can fill out beneficiary forms provided by the financial institution holding the IRA.

• On both types of accounts, be sure to designate secondary beneficiaries — if you’re married, typically, your children -- in the event that your primary beneficiary dies before you do. If you’re remarried and have grown children from your first marriage, they would probably be your primary beneficiaries. Your secondary beneficiaries would probably be your grandchildren.

By attending to this critical issue, which may involve the bulk of your wealth, you’ll assure that your true heirs inherit their rightful legacies.

Any opinions expressed here are solely those of the author.

Laura Mattia is a partner with Baron Financial Group, and a fee-only financial advisor. She's a Certified Financial Planner professional (CFP®), a Chartered Retirement Plan Specialist (CRPS®) and a Certified Divorce Financial Analyst (CDFA™) and holds an M.B.A. in accounting/finance. Her Internet radio show is Financially Empowering Women™ with Laura Mattia. A former professor at the Rutgers University Business School, Mattia is completing a Ph.D. in financial planning from Texas Tech University; her dissertation is on how to help women plan for retirement.